What is Stellar? (XLM)

Stellar is a blockchain-based payment protocol launched in 2014 by Jed Mccaleb – founder of Mr. Gox and co-founder of Ripple – and lawyer Joyce Kim.

Originally, stellar aimed to create a network of microfinance institutions in developing nations1 and to serve the unbanked2. It later shifted toward focusing on connecting established financial firms to the blockchain3.

Stellar’s native cryptocurrency, lumens (XLM) serves several functions on the network. It can be used to pay for transaction fees and can act as a bridge, enabling users to trade between multiple currencies. Stellar also requires users to maintain a minimum balance of XLM in their accounts4.

The stellar network was launched alongside the non-profit Stellar Development Foundation in July 20145. This foundation, created by Jed McCaleb and Stripe CEO Patrick Collison, distributed the initial 100 billion XLM to a variety of parties – 50 percent to individuals who signed up through an invitation link at a rate of about 50-300 XLM per person, 25 percent to various partners, 20 percent to bitcoin and XRP holders and 5 percent were kept for operational purposes6.

After the distribution of the first 100 billion XLM tokens, the network mints new coins at no cost to the circulation at a rate of 1 percent per year7.

In 2019, Stellar hired ex-Mozilla executive, Denelle Dixon, who is known for her advocacy for net neutrality and personal data control8.

Stellar has entered into partnerships with various businesses worldwide, including IBM9 and ICICI10 in the US, and Barclays and Deloitte in the UK1112.

Launch & Issuance

The Stellar blockchain launched alongside the nonprofit Stellar Development Foundation in July 201413. This foundation, created by Jed McCaleb and Stripe CEO Patrick Collison, distributed the initial 100 billion XLM to a variety of parties.

Fifty percent of the tokens were given away to individuals who signed up through an invitation link at a rate of about 50-300 XLM per person. 25 percent of the supply was given to a variety of partners that contributed to the growth and adoption of the stellar ecosystem, and 20 percent of the tokens were distributed to bitcoin and XRP holders in two separate rounds (October 2016 and August 2017).

The remaining 5 percent of XLM was saved for stellar.org operational expenses14.

In 2018, crypto wallet company Blockchain partnered with Stellar to distribute $125 million worth of XLM (about half a billion tokens) to blockchain wallet holders who signed-up for the airdrop15.

Network Design & Security Model

Stellar’s native cryptocurrency, lumens (XLM), serves several functions on the network. It can be used to pay for transaction fees and can act as a bridge, enabling users to trade between multiple currencies. Stellar also requires users to maintain a minimum balance of XLM in their accounts16.

Stellar utilizes its own consensus mechanism, the stellar consensus protocol (CSP), created by Stanford professor David Mazières17. This system relies on people running the software (nodes) to communicate over the internet and for them to cooperate between networks.

The way that trust works in this system is that each person who runs the software are tasked with identifying several trusted participants to apply the cryptographic rules that enable transactions to be validated18.

Anyone who downloads the software is tasked with running the nodes, which can be anyone from banks, to developers and from businesses or individuals who simply want to transfer money.

Monetary Policy & Crypto-Economics

After the first 100 billion XLM tokens were distributed, new coins get added at no cost to the circulation at a rate of 1 percent per year19.

The protocol distributes these lumens every week to accounts that get over .05 percent of votes from other accounts in the network20. This inflationary mechanism rewards users proportionately to the number of votes submitted.

For example, if an address receives 5 percent of the vote, they will receive 5 percent of that particular week’s inflation reward21.

Transaction processing

All transactions in the Stellar network settle to the blockchain and the average ledger closing time is between 3 to 5 seconds22.

Coding

Stellar is an open-source project that originally forked from Ripple23. It has software development programs written in C++ Javascript, Ruby, Go and CSS.